1st Steps in Creating Wealth – Pay Yourself First
When things were booming, when everything was going so well, many thought their speculation/gambling/borrowing ideas were creating wealth. Any small problems or worries seemed insignificant, they’d all go away in time right?
Especially in regards to finances – stocks and home values always go up, right? That may have been the assumption many had a few years ago during the great housing boom. People were going out and buying things – a lot of the time on credit – without thinking about if they could afford it or not; they thought they were living the American dream. When the bills came in, no problem, they just borrowed money out of their home, treating it like at ATM machine, kicking the can down the road, thinking mistakenly that they really were wealthy.
Then the illusion of the American dream turned into the American nightmare. The debt finally caught up with a lot of people, no longer able to kick the debt down the road by obtaining another credit card or borrow against their home, having to actually make payments on their accumulated consumer (bad) debt, having to now make real payments on their homes (the teaser rates on their option arms also reset to the actual rate or cost of borrowing that money) and find a real solution to their self-inflicted problems if they ever wanted to get involved in truly creating wealth and live the REAL American Dream (which is not living off consumer credit, but is instead achieving financial independence and actually being able to afford and pay for those luxuries!).
Now I’m not judging or coming down hard on these people. This in fact was the majority of people across the country who got caught up in the “good times” in some form or fashion, not aware of the fast approaching repercussions.
So if your Objective is Creating Wealth, what now?
If you’re someone who has just realized something needs to change or if you’ve known for some time now that something needs to change so you can start creating wealth but you don’t know how or where to start, what can you do?
Creating Wealth step 1:
When you’ve gotten yourself into a hole, the first rule of holes is: STOP digging!
You first need to assess where you’re at, how much debt do you owe, what are the terms, payment amounts, etc, and compile that along with your income and monthly expenses. You need all that information together in one place so you can see where you are. It should be pretty easy to see where you’re headed if you continue doing what got you into this position in the first place (digging yourself into a hole, the opposite of creating wealth). But if you’ve never even taken a look, you may not have ever realized. Realization and awareness of the spending problem is the first real step.
Creating Wealth Step 2:
Once you can see where the problem lies, ie, you spend more than you make, you need to put together a plan of how to remedy the situation. In most cases, this actually is easier than most people think. The hardest part is coming to terms with it. You may feel that the problem is that you simply do not make enough money, however, you have to be realistic and conservative with your current situation otherwise you’re simply putting more pressure on yourself than you need to.
Compounding is real, and while it’s great when it’s creating wealth and working for you, it can be an absolute nightmare if it starts working against you! It’s a very powerful force of nature! If you don’t cut back your expenses to within your means, the interest, penalties and fees will mount up so fast and compound on top of each other that within a matter of months you can find yourself stuck, unable to escape.
That’s what we want to avoid. The future is bright, opportunities are everywhere. Turn off the news, cut out all negativity in your life because it’s sure not helping! Just getting your finances under control is a super confidence booster.
Not only that, once you’re in control of your finances and living beneath your means, it gives you a chance to catch your breath. You realize that the sky isn’t falling, and on top of that, I’m going to show you a way to start having money become attracted to you. This technique for creating wealth is so powerful, and whether its just a psychological phenomenon or what I don’t know, but it literally turns the tide of your finances and you will find yourself somehow beginning to attract money instead of repelling it.
But it starts with reigning in your expenses. One of the first principles of wealth creation you need to understand is paying yourself first. This isn’t just some cute catch phrase, this is fundamental. You must change your programming, change your habits, change the way you do things, change your relationship with money. It is crucial.
If you ever want to become wealthy or rich, you must think and act like they do. You must pay yourself first. Set aside 10% of your income every time you get paid without thinking about it. Take it out of your paycheck and put it aside, somewhere where you won’t be able to spend it. Or convert it into precious metals like gold investing or silver investing. That makes it that much harder to spend because you have to convert it first.
Paying yourself first is putting that money aside, being responsible with your money, investing into yourself, into your future. By doing this, you will be released from the grasp that money has over you, the fear of losing it will melt away and you are creating wealth. You will have power over money – and that is truly powerful. You will realize that you can live and survive on 90% of what you were living off before; not only that but you’ll feel better knowing each pay check is now helping to build your future instead of just going to pay bills or for entertainment or whatever and each month your wealth can grow.
(I highly recommend you get a copy of “The Richest Man in Babylon” for some truly powerful financial education that in itself can help you establish the true power behind this principle and the incredible wealth it has created for those with enough financial discipline to apply it consistently).
If all you can do is pay yourself first each month, set aside 10% of all income that comes your way, you will change your life dramatically! Do not take the power of this fundamental principle for creating wealth for granted!
To learn more about creating wealth, read the next article in this series: Creating Wealth – 3 Business Building Ways To Take Control And Get Ahead In These Uncertain Financial Times
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You have made some really great points in this article. It is so important to pay yourself first. Doing this allows you to bring value to yourself for the work that you do and helps you to start creating wealth and abundance in your life. It’s also key to look at how much debt you have on credit cards and start to pay this off. Thanks for the tips!
Just want to say your article is as amazing. The clearness in your post is simply great and i can assume you’re an expert on this subject. Well with your permission allow me to grab your RSS feed to keep updated with forthcoming post. Thanks a million and please carry on the gratifying work.
So true, the initiative to growth will always start within. Within YOURSELF, so to improve and achieve goals specially when it deals with profit, it is best to start investing, less expenses and more savings.
10% is not much and seems very doable! I forget that it adds up in the long run.
Not only does it add up, but it compounds and multiplies – that really is the secret to creating wealth!
Since our country is facing economic crisis these days, it’s extremely important to know how to save your money. When I was young, my parents taught me how to save my money and not to buy nonsense and useless things. So I am really thankful to them that they taught me to become responsible when it comes to money matter.
I was very fortunate to have a Grandmother who taught me how to be responsible with money so I have always bought things with cash! It has been devastating to see the mess that people have gotten themselves in and I believe that advice like you give here is so valuable.
Hey Emma, using only cash will help you avoid bad debt, that’s for sure. But for creating wealth, acquiring good debt, ie, debt that makes you richer (a mortgage on an apartment complex that provides you income each month for example), will help you get there faster, as long as done responsibly. Thanks for dropping by!
Hi Hans Schoff,
Well said. Paying yourself is very good and necessary habit for becoming wealthy. Thanks for such a good and well explained article.
Shivam, thanks for stopping by!
I absolutely agree with your post, that you need to stop digging the hole and pay yourself first. It’s funny but when it comes to spending, it’s easy for people to think that the $2 they spend each day on something doesn’t amount to anything but when added up, it’s huge on either side of the coin . Folks would be so much better off in the long run if they stop spending it on lattes and put it into an account for themselves first. Thanks for your post.
Hey Linnea, very true. Another way to look at it is to look at every $1 you don’t spend today on something frivolous as $5 in a few years time (if that same dollar were invested or even just put into something inflation-protected like gold or silver to protect its value even). Then, when you’re looking at buying something with a cost of $100, think of the same item and if it were $500 if you’d still want to buy it because it was that worth it to you (also helps to prevent impulse buying on things you’ll probably never use!)
I Just loved the article it really gives a brilliant Idea of how to make money through proper savings. I feel this is brilliant way to try make money through proper saving and help those who are interested in better planning. I really want to learn more and implement this for my self at my place. I guess with the help on SMM will also increase the opportunity to learn more.
I am looking for a program where i can help people to help themselves
especially mothers who are struggling with their children financially
and don’t know where to turn
Joseph, take a look at this video and let me know what you think. This may contain the solution to what you’re looking for: http://moreincomelessexpense.com
I totally agree with the idea of paying yourself first. It’s just that, it’s not easy to do, and excuses abound to skip it. Totally convinced but still struggling in this area. Glad that in my previous company, we have a cooperative where you can save whatever amount you specify through salary deduction. That was absolutely helpful.
Stephanie, it is such a simple idea yet so powerful. But as Jim Rohn says, if something is easy to do, its also easy NOT to do. Thanks for the comment.
Hey Hans…Totally love this post and the reminder to pay oneself first. I especially liked the reminder to STOP DIGGING! That is such an easy way to explain it to people. I recommend to the young 20 somethings that I have worked with – put $20 away from every paycheck. You won’t notice $20 – don’t buy a few coffees and you’re there…then 20 years from now you’ll be a happy camper.
Creating wealth doesn’t always have to be about saving 1000’s at a time. Every dollar counts. Thanks for the reminder on compounding. VaNessa
Hey Vanessa, we’ve all heard about the importance of saving and compounding. For me it didn’t really hit home until I read that book, The Richest Man in Babylon. It really illustrates this importance and how crucial it is. And again it’s just a mindset. If you develop the habit of putting aside the $20 everyday, once you’ve done it for a while it’s easy – in fact it becomes harder to stop doing it. But just knowing that you are in control of your money, that it doesn’t control you creates a huge feeling of empowerment – so important no matter what your age. Thanks for your comments.
Great points Hans! When people are so in debt they often forget to “pay themselves.” While it is important to pay down/off your debt as quickly as possible, I firmly believe that you should still always set aside savings. Not only is this a great habit to get into and will help ease your mind as you said, but also to have the cushion in case you ever need it!
Hey Jenna, it really is a huge confidence and belief builder when you know that no matter how bad things are or how much debt you may be in or what demands are being put on you, that still you are able to pay yourself first. To know each month that you’re able to set aside some money to work for you, some money to compound and expand your wealth provides such an important feeling of certainty and also has some magical power that in the process somehow attracts more money to you. It’s indeed powerful if applied consistently! Thanks for your comment
In whole of your post I am unable to find any solid way from top to bottom to get wealth. I wish that you should show a full planned wealth earning system with examples. You have just provided tips with which a business can be success full. You should tell about a business with its hidden and visible tips.
Ross, if you’d like to learn how to generate passive income to create wealth, follow this link and follow the 4 step system: Creating Wealth video
Additionally, I have created a 7 page guide for creating wealth that will help prepare you for the process, which you can download from any page in my blog by entering your details in the top right of the page and hitting submit. There are some 30 or 40 posts on this blog with additional tips and information about creating wealth. I’d suggest you read more than just that one post, though that is a great place to start. Creating wealth is not simply about making money; it starts with good money habits like paying yourself first…
Once you’ve gone through the 4 step process I mentioned above, contact me I’d be more than happy to walk you through the process to help you start creating passive income and creating wealth.
Great tips Hans – and it’s funny you chose that purple pig to use. I actually wrote an article some time ago with that same graphic about how piggy banks aren’t just for kids anymore. Seriously, I chuck all my change into my little bank and it is truly amazing how it adds up. In fact, I bought my laptop with money I saved from doing just that. These days I have 2 banks – one for me and one for KIVA micro loans. Look forward to your next article!
Hey Marquita, it is amazing what that simple little discipline of setting aside some money can do. It is very empowering which gives you the right mindset which literally helps you attract more money into your life. Thanks for your comment Marquita!